Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Bullish Attitudes Evaporate

Feb 08, 2013

Market Watch with Alan Brugler

February 8, 2013

Bullish Attitudes Evaporate

It was a "down" week for most of the ag commodities, excluding the rice and oats. The latter were up 7.4%, but if the axiom is correct that "oats knows where corn goes", corn hasn’t yet received the memo. The evaporation of bullish attitudes was particularly notable in soybeans, which did an abrupt reversal on Friday. The market was overbought when looking at the sentiment indicators ahead of the report, and that proved fatal to the bulls when USDA pretty much confirmed exactly what everyone was thinking regarding Brazilian and Argentine production.

Corn futures dropped 3.67% this past week, erasing three weeks of rising prices. Demand concerns abound, with USDA cutting projected corn exports another 50 million bushels in the Friday WASDE report. The average cash price was dropped 20 cents per bushel, and ending stocks looked just a tad looser at 632 million bushels. Some had expected corn use for ethanol to be trimmed as well, due to the number of plants currently shut down. However, several of those plants are now reportedly making plans to re-start, due to improved margins. The EIA weekly ethanol report on Wednesday showed the larger daily corn use than the previous week, despite additional closure announcements.Other plants may be moving to fill the gap in production. US corn weekly export sales remain poor, as the bulk of the price rationing has devolved to that portion of the market. USDA did bump up projected world ending stocks to 118 MMT from 116 MMT.

Commodity

Weekly

Weekly

Month

01/18/13

01/25/13

02/01/13

02/08/13

Change

% Change

Mar

Corn

$7.28

$7.21

$7.36

$7.09

($0.27)

-3.67%

Mar

CBOT Wheat

$7.91

$7.77

$7.65

$7.56

($0.09)

-1.14%

Mar

KCBT Wheat

$8.44

$8.29

$8.23

$8.00

($0.24)

-2.88%

Mar

MGEX Wheat

$8.74

$8.64

$8.52

$8.37

($0.15)

-1.76%

Mar

Soybeans

$14.29

$14.41

$14.74

$14.53

($0.22)

-1.48%

Mar

Soybean Meal

$414.40

$416.40

$428.20

$422.40

($5.80)

-1.35%

Mar

Soybean Oil

$51.68

$52.10

$52.99

$51.43

($1.56)

-2.94%

Feb

Live Cattle

$124.95

$126.30

$127.10

$126.45

($0.65)

-0.51%

Mar

Feeder Cattle

$146.35

$147.95

$149.20

$145.00

($4.20)

-2.82%

Feb

Lean Hogs

$85.35

$86.83

$87.65

$86.45

($1.20)

-1.37%

Mar

Cotton

$78.55

$80.52

$83.10

$82.75

($0.35)

-0.42%

Mar

Oats

$3.56

$3.63

$3.59

$3.86

$0.27

7.38%

Mar

Rice

$15.16

$15.48

$15.56

$16.35

$0.78

5.04%

The soybean market was technically vulnerable to a sell off heading into the report, which was the reason for our additional put option purchases and cash sales ahead of the USDA report. The USDA numbers were about as expected, but in an overbought market no news equals bearish news. USDA cut Argentine soybean production by 1 MMT, but hiked Brazil by 1 MMT. US ending stocks were trimmed to 125 million bushels due to higher product demand and crush. Bears were disappointed that USDA didn’t hike projected exports, with 93% of the current forecast already on the books. However, the message is pretty clear. USDA believes that US exports will drop off sharply after South American supplies become available in March and April. There may also be some cancellation risk on those outstanding sales.

Wheat was lower on all three exchanges, with KC the weakest. That re-aligned the spreads, which had been stretched the other way the previous week. Chicago was down 9 cents for the week, but UNCH on Friday. USDA increased projected wheat feeding for the current marketing year, and also increased the projected SRW share of US exports. KC was weaker because of improving precipitation for parts of the HRW growing area, and because HRW export interest has been slowing down. USDA left the average price for US wheat unchanged at $7.90.

Cotton prices retreated 0.42% for the week. USDA cut projected US ending stocks to 4.5 million bales, raising projected exports 300,000 bales. The tighter scenario also increased the cash price midpoint to 71 cents. World ending stocks are still seen as very large, at 81.86 million bales. That is 77% of annual use, or a nine month supply. However, the US is making export sales anyway, and 42.61 million of those stocks are expected to be in one country (China). Weekly export sales were down on Thursday, due to the sharp rise in prices over the past two months and some questionable global demand.

Cattle futures were down 0.51% for the week after rallying 0.63% the previous week. Weekly beef production was 4.6% smaller than last week, but up 0.4% from the same week in 2012. Average carcass weights are still an estimated 11 pounds per animal higher than last year at this time. Wholesale prices were down $.44/cwt for Choice boxes, a 0.2% drop. Select beef was actually up $1.00 per cwt, or 0.6%. The choice/select spread dropped down to $2.50. In recent years it has dropped to less than a dollar in February or March, and sometimes goes negative. US weekly beef export sales through January 24 slowed to less than 10,000 MT.

Hogs were down 1.37% for the week, applying a little pressure to the cattle. Hogs were also seeing pressure from expanding broiler placements and egg sets. Estimated weekly slaughter was 2.139 million head, down 1.7% from the previous week and 1.3% larger than the same week in 2012. Pork production was down 1.8% from the previous week, but up 0.8% from the same week in 2012. Average weights are now estimated to be one pound lighter than year ago. The pork carcass cutout plunged 4.58% for the week, with the pork belly quotes down 12.6% since February 1. Cash hog prices were mixed on Friday in the west, but firmer in the ECB. The IA/MN weighted average was down $1.05 on Friday. The average WCB direct sale was $84.55 vs. $88.34 a week ago. The ECB average was $85.56, vs. $85.91 a week ago.

Market Watch: This is a week with some holidays (Lincoln’s Birthday & Valentine’s Day in the US, Foundation Day in Japan), but only the Chinese get the week off (Chinese New Year, starting the Year of the Snake). The regular USDA reports will be released, including Export Inspections on Monday and Export Sales on Thursday. Monthly NOPA crush is scheduled for Thursday release. Thursday will also be expiration day for February hog and canola.

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